ATS Corp /ATS Q4 FY2022 Earnings Call

Good morning, ladies and gentlemen, welcome to the ATS Automation Fourth Quarter Conference Call and Webcast. This call is being recorded today, May 19, 2022 at 8:30 A.M. Eastern Time. I would now like to turn the call over to Mr. David Galison, Head of Investor Relations at ATS. Please go ahead, sir.

Thank you, operator and good morning, everyone. On the call today are Andrew Hider, Chief Executive Officer of ATS; and Ryan McLeod, Chief Financial Officer. Please note that our remarks today are accompanied by a slide deck which can be viewed via our webcast and available at atsautomation.com. We caution that the statements made on our webcast and conference call may contain forward-looking information and our cautionary statement regarding such information including the material factors that could cause actual results to differ materially from the statements and the material factors or assumptions applied in making these statements are detailed on Slide 2 of the slide deck. Now, it's my pleasure to hand over the call to Andrew.

Thank you, David. Good morning, ladies and gentlemen and thank you for joining us. We're pleased to report another quarter of profitable growth for ATS featuring record revenues, strong order bookings and order backlog and continued adjusted EBIT margin expansion. Despite challenges in the global business environment, the year as a whole saw ATS produce double-digit organic revenue growth while achieving on-target contributions from newly acquired businesses. All of this reflected good execution of the ABM playbook by dedicated and resilient ATS teams worldwide. As part of our expansion strategy, integration activities with all our recent acquisitions continued in Q4 and we completed the acquisition of HSG. Today, I will update you on our business and then, Ryan will provide his financial report. Starting with our financial value drivers, Q4 revenues were a record $603 million, up 51% from Q4 last year, driven by a combination of acquired businesses and continued strength across our core operations. Organically, revenues grew 11% year-over-year. For the full year, total revenues were up 53%, including 20% from organic growth. Q4 order bookings were $638 million, up 38% year-over-year. Bookings were strong across most market verticals in Q4 and featured key wins within Life Sciences, consumer, transportation, and food. For the full year, bookings were up by 51%, driven by acquired businesses. Our adjusted EBIT margin for the quarter was 14.2%, representing margin expansion of 183 basis points from Q4 last year, with strong sequential and full year margin expansion as well. Moving to our outlook, we finished with a $1.4 billion order backlog that includes several large enterprise programs that have longer durations. Our backlog is distributed across diversified regulated industries where quality and reliability are mandatory. The size and composition of the backlog provide us with a solid base of business as we head into a new fiscal year. By market, conditions remain generally positive in Life Sciences with good activity levels in our key sectors of medical devices, pharma, and radiopharma. Life Sciences represented more than 50% of our ending backlog and we expect it to remain a key vertical for ATS. In EV, we remain bullish as OEMs accelerate their investment plans. We received several additional orders for battery assembly systems during the quarter. Our experience and successful track record position us well as new complexities arise from evolving battery technologies. In Food & Beverage, we continue to see orders across both processing and packaging. Key drivers include a strong tomato season, demand for primary and secondary processing, and a need for automation and processing technology due to labor shortages, specifically in North America and Europe. In consumer, we're seeing ongoing activity in warehouse automation as well as increased order intake from cosmetics customers during the quarter, a market which was particularly hit hard by pandemic-related effects. In energy, there is ongoing interest in nuclear power and grid battery storage to support green energy initiatives and we're focused on funnel development in these areas. And after sales services, we have continued to expand our regional networks and we're now providing local support to some of the customers of our recent acquisitions, such as SP, MARCO and CFT. This is a good start on our journey to increase value for acquired customers and share of wallet for ATS. We are progressing in our digital journey to develop combined technologies and service solutions to meet our customers' challenges on the shop floor. By way of example, we recently helped the customer drive better value out of Illuminate by analyzing their data to identify areas for immediate support which drove a significant OEE improvement. In addition, based on knowledge generated from the data, we are now providing ongoing support to the customer through health checks, upgrades, and a service level agreement with future potential to expand to other equipment and higher-value services. Next, I would like to address some of the macro issues facing the markets. In Ukraine, ATS has a small operation that serves as an internal supplier with 70 valued employees. We are maintaining regular contact and supporting our team and we have made a donation to the Red Cross. Our donation is being used to fund mobile health teams, families displaced by the war, and emergency basic needs. Our thoughts are with those affected by this tragic situation. Relative to the pandemic in many geographies, we've seen restrictions that were implemented in the early days of the pandemic lifted or reduced but the situation remains fluid. We are working with our customers and employees to monitor the situation and address the challenges. Despite the difficulties and Q4 absenteeism in some geographies, our teams have maintained their focus on delivering world-class performance for our customers. Inflation, supply chain constraints, and competition for talent represent ongoing challenges. The situation remains dynamic for ATS and for our customers benefiting from the efforts of our teams and the deployment of our ABM. To date, we've had a good level of success in mitigating some of these challenges. However, we're not immune. That said, ATS is ideally positioned to assist our global customers with automation solutions that will strengthen their global supply chains and reduce both production costs and labor dependence. To summarize our outlook, this quarter included strong order bookings, order backlog, and a solid opportunity funnel. We remain encouraged by recent activity levels, while at the same time, recognizing that this is a complex and volatile business environment with heightened risks to order intake timing and operational execution. Our teams remain focused on problem-solving efforts to identify effective countermeasures to mitigate the effects, with special ongoing attention to supply chain assisted, as always, by our continuous improvement playbook or ABM.

Thank you, Andrew and good morning, ladies and gentlemen. I'll start with an overview of our Q4 operating results and then, I'll provide color on our balance sheet. Starting with orders, bookings were $638 million, up 38% compared to Q4 last year. Growth was driven by acquired companies, primarily CFT, contributing $81 million and SP adding $66 million. Organic growth in bookings was 1%, offset by a 3% headwind from foreign exchange translation. For the year, bookings of $2.5 billion were up $830 million due to increases in Life Sciences and food. Of this 51% increase, organic growth was 21%, while acquired companies drove 34% growth. Foreign exchange translation had a negative 4% impact. Our book-to-bill ratio for fiscal '22 was 1.13:1, positioning us well for continued organic revenue growth. Moving to revenues, our top line grew 51% in Q4 over the prior year. Our organic growth of 10.5% related primarily to growth within the Life Sciences and transportation verticals. Foreign exchange translation created a 3% headwind compared to Q4 last year. Acquired companies added 43% of revenue growth with CFT and SP being the primary contributors. For the year, revenues were $2.2 billion, an increase of 53% from the prior year. Revenues from acquired companies contributed 37% to overall growth, while organic growth was 20%. This was offset by a foreign exchange translation impact of 4% for the year. As expected, with the addition of SP, our revenue mix shifted to a higher rating on product sales and shorter cycle original equipment which provides a good balance to our longer duration project-based revenues. Our Q4 revenue mix was 59% from construction projects, 18% from product sales, and 23% from services. In Q4 of last year, this mix was 65% from construction sales, 8% from product sales, and 27% from after-sales services. We continue to focus on growing our after-sales service business, with Q4 after-sales service revenues growing 14% sequentially and 68% year-over-year, including 21% organic growth compared to last year. Our Q4 ending backlog of $1.4 billion was 24% higher than Q4 last year. Looking forward, our revenue conversion for Q1 is estimated to be in the lower end to 40% to 45% range of order backlog. Of note, this is an increase to our prior quarter range of 35% to 40% and reflects the change in the mix of our business. As a reminder, this estimate is based on revenue expectations for both the execution of projects from backlog and work that will be booked and built within the quarter. Moving to margins, included in Q4 gross margin were $5.2 million of costs related to fair value adjustments of inventories acquired through acquisition. Excluding this adjustment, Q4's adjusted gross margin was 29.6%, 180 basis points higher than the comparable period a year ago. Higher gross margin reflected operating efficiencies from strong project execution, improvements in the cost structure of our core business through previous reorganizations, increased after-sales service revenues, and other continuous improvement efforts achieved by deploying our ABM. To date, cost increases and lead time extensions in our supply base have not had a material impact on our profitability. In our systems integration businesses, we've been largely able to mitigate the impacts. In our product and original equipment businesses, we have seen some impact on margins from rising costs of certain commodities and components. Cost increases, notably for lead, aluminum, and stainless steel, continue to affect direct raw material purchases and add inflationary cost pressure on derivative component supply. Electrical components are still the primary category impacted on lead times. From a risk mitigation perspective, we have a diversified supply base with our top 10 suppliers accounting for less than 15% of our total external spend. No supplier represents more than 3.5% of our total spend. We continue to monitor the supply chain with concerted efforts made by our team to identify and implement countermeasures, including embedding secured supplier costs into new quotes, accelerating order timing, securing alternative sources of supply, and implementing pricing changes. Our ABM has served us well to date as we navigate and continue to address these pressures which we anticipate will continue throughout fiscal '23. ABM efforts, combined with our strong backlog, have served us well in managing our risk exposure. Moving to SG&A. Expenses were $49.2 million higher than Q4 last year. This year's costs included $19.2 million of acquisition-related amortization, $1.4 million of acquisition-related transaction costs, and $1.9 million of restructuring costs, mainly related to ongoing cost rationalization in acquired businesses. These costs were partially offset by a $1.7 million favorable adjustment in respect of acquisition-related contingent consideration. Excluding comparable items in both periods, Q4's SG&A was $91.8 million, $37 million higher than last year, reflecting incremental SG&A costs from acquired companies, primarily CFT, BioDot and SP. Fourth quarter stock-compensation expense was $800,000, down $11.9 million from Q3 and down $6 million from last year. The decrease in stock-based compensation costs was a result of lower expenses from the revaluation of deferred and restricted share units. Q4 adjusted earnings from operations were $85.8 million or 14.2% compared to $49.5 million or 12.4% last year. The increase reflected improved gross margin and lower stock-compensation expense, partially offset by higher SG&A expenses. Excluding acquisitions, our core business operated with a 16.8% adjusted earnings from operations margin. Adjusted earnings margins from our acquired businesses were 7.7% in Q4 compared to 7.4% in Q3. For the year, our core business achieved a 15% adjusted earnings from operations margin. We are pleased with this performance and are focused on continuing to expand our margins in both our core and acquired businesses. In the short term, challenges in the supply chain will continue to pressure our countermeasures. Moving to the balance sheet, in Q4, cash flows from operating activities were $30 million, $8.9 million lower than last year. It is primarily related to the timing of investments in non-cash working capital in certain customer programs. In fiscal '22, we generated cash from operations of $216 million, up from $185 million last year, reflecting growth, improved profitability, partially offset by increased investment in non-cash working capital. Our non-cash working capital as a percentage of revenues was 8.2% in Q4, up from 6.3% in Q3 and 6.2% in Q4 last year. We invested $16.3 million in CapEx and intangible assets in Q4 compared to $13 million in Q4 last year. Higher investments primarily related to growth in our business. In fiscal '22, total CapEx and investment was $53 million. We expect to increase our CapEx in fiscal '23 in order to support growth through additional capacity and investments in innovation. Overall, our CapEx budget for fiscal '23 is expected to be in the range of $90 million to $110 million. On leverage, our year-end net debt to adjusted EBITDA ratio was 2.8:1. On a pro forma basis, including the trailing 12-month EBITDA contribution of acquired businesses, our net debt to adjusted EBITDA ratio was approximately 2.6:1. We ended the quarter with $135 million of cash and availability on our credit facilities of $229 million. Going forward, we're focused on maintaining our strong balance sheet while simultaneously supporting flexibility in our financing structure to continue pursuing our growth strategies. In summary, we're pleased with another quarter of good results, including record quarterly revenues, strong bookings and backlog, and margin expansion. These achievements reflect organic growth, contributions from our newly acquired businesses, and the ongoing deployment of our ABM playbook. Our global teams persevered in the face of adverse business conditions, allowing ATS to deliver best-in-class solutions to our customers and strong financial results.

Your first question comes from David Ocampo, Cormark Securities.

Ryan, you mentioned earlier about obtaining some pricing relief from your customers and being able to pass that on. However, I would like to focus more on the enterprise contracts since they tend to be longer-term. What kind of flexibility do you have regarding pricing? For instance, if inflation or employee wages increase by 10%, can you pass that cost on immediately, or does ATS explore other avenues to manage that, such as sourcing from different suppliers?

So first of all, whether it's an enterprise program or a regular shorter duration construction contract, when we're doing custom work, we're going out and quoting our supply chain in both cases and typically, it's going to be in the 60% to 80%. We're not quoting 100% of our supply chain but certainly, the key components in the majority of our third-party materials. And that's where we get some price protection on cost increases from our supply base. And so, if there's a sudden price increase in a component, we didn't source, that's when we're going to look at alternative levers like utilizing alternative sources of supply, we might change design for certain components. So those are some of the measures that we've used and continue to use. In terms of people and other costs, we do factor in our expectation for wage increases and that's part of our normal process in quoting as well.

No, that makes a lot of sense. And then, Andrew, maybe one for you and we've always talked about capital deployment and how your M&A pipeline is quite flush here. But just given kind of the relative valuation on where ATS is trading today and maybe where the expectations are for some of your targeted companies? Has your thought process changed on capital deployment? Can we expect more to be done on the NCIB? I know a little bit of shares got picked up there. But how should we be thinking about that going forward?

If I take a broader perspective, I want to emphasize that our primary focus is on long-term shareholder value and our capital allocation plan. We have a comprehensive strategy in place, and I'll outline the key components. Firstly, as you mentioned, we have the NCIB, which allows us to leverage our opportunities when they arise, and you've noticed some recent activity in that area. Secondly, regarding mergers and acquisitions, we continue to explore the market actively. For long-term value creation, we will keep assessing and identifying companies that strategically align with ATS. Our pipeline remains robust, focusing on sectors that promise significant opportunities for our customers and shareholders. However, it's important to note that the M&A market is down year-to-date, with banks indicating a decline of about 30%, but our efforts in cultivation persist. Sometimes, finding the right asset and targeting the right companies can take a year or two, so we are diligently building our strong pipeline.

Your next question comes from Mark Neville of Scotiabank.

Great quarter, great job. Maybe just quickly a follow-up first on David's question, just around price, on these programs or on any program, do you have the ability to go back and sort of adjust price while the program is ongoing?

In some contracts, we do have that ability. However, those instances are currently rare and are more often used when we have ongoing master agreements with customers.

Okay. Maybe just on the margin sort of longer term, the 15% target, I can't remember the number you quoted but the legacy is close to 17%. When you think about the acquired businesses doing 7, just big picture, when you think about these businesses longer term or what they should do, should they look over time comparable to legacy or maybe even a bit better just given the mix?

I’ll do my best to address your question. The core business achieved a 16.8% margin this quarter, benefiting from stock compensation, and we reached 15% for the year. This gives a clearer picture considering the variability in our stock compensation expense throughout the year, which has become more stable. We’re quite satisfied with this performance. Regarding the acquired businesses, there’s a mixed outcome; some contribute positively to margins while others, like CFT, have a negative impact. We previously mentioned that CFT is a low single-digit margin business. We have a strategy in place to enhance those margins over time, and we've made good progress. However, this business is also more affected by current supply chain challenges, leading to increased costs for raw materials and components. Despite this, we are happy with the advancements we’ve made in reducing costs and improving operational efficiencies. Nonetheless, we still have work to do with this business and in achieving overall performance.

Can you talk about the CapEx budget for the year? It seems like a significant number for you. While funding it isn't an issue, could you share some insights on what you are doing this year that's contributing to that expense?

Yes, it's a larger number. First of all, our total business has increased, which means that maintenance requirements are higher. We are still within the low 2% range for maintenance. Additionally, we have several growth initiatives aimed at increasing capacity, primarily by expanding floor space in our key locations where we have a strong presence and have seen significant growth. We are also increasing our investment in innovation, which has been a focus of ours for several years and remains a vital aspect of our growth strategy. That being said, we have some flexibility in our plan, and depending on business conditions, we will continue to monitor and make adjustments as necessary.

Your next question comes from Maxim Sytchev of National Bank Financial.

A couple of questions, if I may, I think in the backlog sort of floor chart, there was a $73 million adjustment. Just was curious if you can comment on that because some of that was in relation to M&A, some of that scope changes just in terms of how we should be thinking about that number?

Yes, so in the quarter, about 2/3 of that is FX related and primarily in the euro, we saw that currency value decrease. And the balance, the other 1/3 would have been normal course scope changes and cancellations.

Okay, that's helpful. I was wondering about the electrical components you mentioned, specifically regarding controllers. How are chip shortages affecting the suppliers of your suppliers, and how well can you see these issues? Can you share any details about how this is being managed?

Yes, Max. I’ll explain this so you can see how we approach it. First, let's divide our business into two categories: standard machines and custom machines. For standard machines, we often incorporate multi-controllers or core agnostic designs when feasible. We sometimes address risks during our engineering and design processes to ensure stability. While it’s more common to have those features in standard machines, for custom machines, you generally have fewer options regarding multi-controllers. However, you might find alternatives within a supplier that offers multiple choices. We keep a close watch on this situation. If a supplier with an A component faces a shortage, we look for alternatives, such as components B or D, and design those in. Thanks to our engineering resources, we can manage these changes. Additionally, given our global reach, we might tap into our distribution channels for long-term acquisitions of components we believe need protection. In some cases, we've also collaborated with customers to facilitate changes. We've managed the situation effectively and remain highly focused on it. Our daily visual management practices are genuine and implemented at every site. Due to our purchasing approach and ongoing acquisitions, we’ve successfully mitigated risks. Notably, our spending is well diversified, with no single supplier accounting for more than 3% of our expenses. While challenges exist and suppliers may be affected, we've been able to navigate this landscape and stay proactive to lessen the impact on our business.

That's very helpful information. In terms of the market outlook, I'm curious about your thoughts on organic growth rates in healthcare as COVID declines, as well as any insights on electric vehicles and potential growth in transportation. Should we expect to see an acceleration in that area?

Yes, so let me walk through that. And I'm going to start with EV because I mentioned it in my prepared remarks we are bullish on this market, on this area. And we continue to see strong demand. As a matter of fact, even this week I was meeting with a customer in this area where they view ATS as a very strategic supplier and they're looking at not only our current technology but ones we're working on from an innovation perspective to build it into their process. And so, we have deep relationships with the OEMs here. We continue to see opportunity. We are well positioned in the space to help them as they navigate the complexities and changes and we continue to stay very close around that change. And if you think about not only the equipment but then the servicing capability, the complexity around if a battery changes, you have to be able to move at their pace and ATS just does a fantastic job of value creation here. If you then look at healthcare, look, this is a big piece of our business and one we view as a growth trajectory. And you mentioned COVID. And certainly, we did see a nice uptick from COVID during that time period. We've largely pivoted back and we are on our base business and we continue to support many of the areas and I referenced radiopharma, medical devices, pharmaceutical manufacturing and even with our new SB acquisition. We've seen even synergies with other businesses like Comecer and DF. And so, we view that as a market that's going to continue to support our aspirations and our growth trajectory.

Okay, absolutely. And then, just one final question for Ryan regarding the supply chain challenges. Is there anything we should be aware of concerning non-cash working capital? Are you looking to potentially over-commit on inventory, or do you have any insights on that?

We have made some investments in inventory to secure products due to longer-than-normal lead times, but this is not significant from an inventory perspective. The drivers of our working capital will mainly be related to project side dynamics and customer and commercial terms. This quarter, we observed a slight increase to just over 8%. I anticipate we will remain in that range, although we could see some quarters reach around 10%. Generally, we expect to maintain that area.

Your next question comes from Justin Keywood of Stifel.

Nicely navigated quarter with a tough backdrop, my question is to do with geography. And I'm wondering if you're seeing any softness in Europe as compared to other regions. And also the revenue split in Europe by vertical, is that consistent with other regions? For example, would Life Sciences be 50% or perhaps even higher given that ATS serves pharma companies that may be based in Ireland?

Look, I'll take the first part of this, and then, Ryan can jump in on the second. So we continue to see opportunity in Europe across the board. And I have personally met with customers here. And what I can state is our funnel remains healthy. I would characterize it as cautiously optimistic. And the only area that I would say we have seen some impact. It is not material but we have seen some impact as we do have customers in Russia that we do not have at this moment. And therefore, we have seen that impact. It is not material on our results. And therefore, it's not something we've outlined or highlighted. Ryan, why don't you take the second piece of that?

Yes. To clarify regarding Russia, it represents less than 0.5% of our total revenue, which, as Andrew mentioned, is not significant. When it comes to vertical markets, our food business has a stronger presence in Europe, while the rest of our business aligns fairly well with the geographic revenue distribution. Currently, transportation is somewhat more aligned with North America, and Life Sciences likely follows suit. The consumer sector will be more diverse, and energy is predominantly North American. Thus, food is the segment most heavily concentrated in Europe at this time.

Great. And then, a follow-on question for the Food & Beverage segment. I'm wondering if ATS provides automation work for baby formula and if this is an opportunity for ATS to help given the current baby formula shortage going on?

We would categorize that as part of secondary processing, and we are active in this space. While I won’t detail all the areas we engage in, we see this as a sector with continued growth potential.

And given the current shortage for baby formula, does this elevate the perhaps demand for a better quality control given the Abbott Lab's facility that was shut down and perhaps there could be some increased attention to higher-quality manufacturing in the space?

I'm going to step back and highlight that this is one of the reasons we are interested in regulated food and secondary processing. There is a strong focus on meeting market qualifications. To provide some insight into how we view the regulated food sector, it shares similar characteristics with our Life Sciences division, where regulation, quality, and reliability are important to our customers. While we are still early in our food journey at ATS, with CFT, Raytec, MARCO, and other areas, we have made good progress and see this as a growth area for our company.

Your next question comes from Cherilyn Radbourne of TD.

Andrew, my first question is for you. We know that you have ongoing dialogue with customers. So I was just hoping to tap into that a little bit. Could you just update us on the tone of those conversations as the quarter progressed and sort of macro uncertainty and inflationary pressures build . Did you get a sense that they were starting to approach CapEx more cautiously as a consequence and/or have they started to look to ATS more for assistance with inflationary pressure?

I'm going to address this. As you know, we are 80% regulated, which typically influences the markets we serve, which have longer growth trajectories. My interactions with customers can be described as cautiously optimistic; we are seeing more resilient markets. Over the mid and long term, these areas face labor shortages at times, and automation can help alleviate that. ATS has been focused on enhancing our value to customers, whether through technology, improving their service and support, or helping them bring their products to market more quickly. Overall, our communication has been strong. To summarize the quarter, we had very robust bookings and a solid backlog heading into the New Year. Additionally, our sales funnel remains healthy as we assess the current core markets.

Great. And then, maybe for Ryan, just in terms of the organic growth in bookings this quarter, can you remind us of the size of the prior year EV bookings that you're lapping? And maybe give us a bit more color on what you're seeing in nuclear and just how timing impact affected bookings in the quarter?

I'll start, and then Andrew can elaborate on the nuclear aspect of the question. We received a couple of orders in the fourth quarter last year that were around $50 million, which is not unusual for us, and this quarter, we had a couple of orders in the $30 million range. Our organic growth in bookings for this quarter was 1%. However, we typically experience some variability due to the size of these orders. That's why I mentioned our trailing 12-month book-to-bill ratio earlier. We prefer to view this metric over a longer-term horizon. For the year, our organic growth rate in bookings was 21%, which is impressive. It will be a challenge to maintain that going into next year, but we take pride in it. As I noted, we don't focus too heavily on a single quarter, and we are satisfied with our bookings, as Andrew mentioned. We have a robust sales pipeline and a strong backlog as we approach the new year.

I'll walk through the nuclear side. I met with an important nuclear customer earlier in the week. We continue to see a niche focus that adds high value to our customers. There is ongoing potential for expansion within our current customer base, and with an increased emphasis on nuclear, we see opportunities for global growth. We often discuss decommissioning and other related areas. As we shift from fossil fuels to this energy source, we recognize additional opportunities here.

Your final question is a follow-up from Mark Neville of Scotiabank.

Maybe just on the sort of the backlog conversion guidance, is this more a function of the higher guide for the quarter, more a function of sort of what's in the backlog or sort of the structural change in the business from all the acquisitions over the past year or so?

Mark, it's both. So we've added businesses that have more products. The equipment is shorter cycle and we've also grown our services. And so all of that changes the mix a little bit and helps it push us into that 40% to 45%. Now that said, we do make this assessment every quarter. We look at our backlog and our expectations for how that's going to get revenue. And so it really is a bit of both. But over the longer term, I would expect given the change in mix in our business that will generally be in that 40% to 45% range. That said, if we have a number of large projects come on in the early stages, we could see that percentage decrease as well. So the short answer is it's a bit of both.

Got it. Maybe moving over to the supply chain and Andrew, I appreciate all the color and sort of how you're managing it. I appreciate you sort of usual every day, every location. But is there also like a centralized supply chain team that's managing this sort of from hope level?

Yes. So Mark, we have both a centralized supply chain team which, by the way, this has been something we've talked about for years where this has been one of our 5 points of focus on our margin expansion plan with supply chain. Our supply chain leader has built a team out here and globally. And then additionally, we have built out teams at the core locations. And remember, these are individuals that our focus is they pay for their costs. So not only do they perform, they've continued to expand and really drive the business. So short answer is yes, we have both. And yes, we look at this from a macro perspective, i.e., global enterprise, all of ATS because we can bring at times that full breadth of our focus to our supply base or a shift of our supply base. And so our growth really is going to be helpful for us as we navigate these times.

Got it. If I can ask last question just on M&A. Curious on a couple of things, I guess. First, just given the macro uncertainty, is more stuff popping up. Curious if sort of seller expectations have changed. Also curious, sort of given sort of the macro and certainly sort of your appetite for sort of doing a dealer deals in this environment if it's changed at all?

We have not observed a significant change in how sellers approach the market. The overall number of deals has decreased, but seller expectations remain largely unchanged. We are being patient, focused, and are committed to long-term value creation for our shareholders. We believe that having a strong balance sheet and being in resilient markets aligns well with the journey that ATS is undertaking. Although the environment is challenging, we are well-positioned to strengthen our relationships and expand our pipeline during this time.

Mr. Hider, there are no further questions at this time.

Thank you, operator. We're pleased with the performance this quarter and appreciate the efforts put forth from our talented teams to make it possible. We look forward to the new fiscal year and the opportunity to continue to deliver on our plans. Thank you for joining us. I look forward to speaking to you on our Q1 call in August. Stay safe and goodbye for now.

Ladies and gentlemen, this does conclude your conference call for today. We would like to thank you for participating and ask that you please disconnect your lines.